Selling a small business, or even a larger and well-established one for that matter, can be the dream of an entrepreneur who has built up their firm from scratch and is now looking to realise their asset. This is often the case when a business owner is reaching retirement age, for instance.However, the reason for selling is one of the things that needs to be conveyed properly to potential buyers. So often, the first reason that buyers are put off is that they don’t understand why the business is up for sale in the first place.
It is better to be clear about reasons for a sale from the outset, even if it goes against your natural instincts. When you come to sell your business, try to give a clear reason as to why. If it is retirement, then say so, but don’t appear to be in a rush to retire or buyers are liable to think you will accept any offers. Other common reasons for a company sale are disputes with partners or simple boredom of owners who are looking for the next life challenge.
Many canny buyers will be able to work out why you are selling, at least to some degree, so it is better to be more upfront than less. If a potential buyer thinks that you are holding something back, then this is commonly interpreted as negative and they tend to pull out. Before even putting your business on the market, ask yourself why and come up with a compelling narrative for so doing.
Not being in a rush is one of the most confident feelings that you can give potential buyers. Remember that for many small businesses, especially franchises, potential buyers are often people who have never run a business before and who can – therefore – be cautious. This may be a once in a lifetime opportunity for them, after all. Arranging for a transition period can be highly advantageous for newcomers. Indeed, the failure to hold the hand of a buyer at the change of ownership stage is one of the prime reasons that many smaller businesses fail to sell at all.
According to Jo Malone, the cosmetics brand builder, finding a buyer who can invest in the business and run it on a day-to-day basis, whilst you stay on providing expert advice can be empowering. If a business is run whilst you are able to take your foot off the accelerator and only provide support, then you are much more likely to sell a company. In addition, you could retain some equity in the business, which is great if it goes on to bigger and better things with the injection of enthusiasm that a new owner can bring.
Over valuation of a business is one of the reasons that many a company sale does not go through. Just as with property prices, it is all to easy to believe in the hype that surrounds valuations and not to see things as they really are. This is particularly the case for business owners who have built their enterprise from little or nothing and have invested huge amounts of time and emotion into their firm.
It is worth remembering that buyers cannot often see these aspects and value a business in much more straightforward terms. Ultimately it comes down to your balance sheet, in particular the business’ assets and the potential growth. According to HSBC, you should also include intangible factors, such as key business relationships, when making a valuation to sell a company.
Some business operate in an established sector. If you want to sell your business in catering, for example, then there is a clear benchmark as to what the firm will be worth compared to others in that sector, albeit with regional variations and some particular details, such as your clientele. However, other business offer a more unique proposition, which can therefore be harder to accurately value.
If your company sale relates to a technological innovation or where the key assets are held in the form of intellectual property, then virtually any valuation can be put on the business. In such cases, try to establish what competitor offerings are like and how close they are to those in your business. The more unique your business proposition is, the more likely it is you can demand a high price, but the more volatile the marketplace for buyers is likely to be.
Many UK business fail to sell because the owner thinks they have the right buyer lined up and don’t put the work in really marketing their firm, as a result – or do so too late in the day. If you are expecting a management buy out or for a trusted employee to take the business over, then ask yourself if they really can manage this or will be able to raise the necessary finance to do so in the current banking climate.
Another question to ask is whether your offspring or chosen buyer really has their heart set on buying the business from you or whether you are being humoured. It is often not until you want to step away from running a company that you really find out whether your exit strategy is going to work or not. As such, prepare for the best, but plan for the worst.
Remember to market your business properly and this will help you to get a fair price for it as well as providing you with a back up stratagem if ‘Plan A’ fails to deliver.